Saturday, September 15, 2012

The Glenealy experience: How do we avoid them in future

After reading through the frustrations and anger that the disgruntled minority shareholders had gone through at the EGM for Glenealy, it reminds me of one event which I went through myself. Back in 2005, I invested in a now delisted small company with very attractive numbers during that time. Cash - RM18 million, market cap - RM20 million, business profit - RM2 to RM3 million every year hence the PE is below 10x and with such cash - attractive? Then, out of a sudden, the company proposed for a purchase of a VOIP business (at a time when that industry was on a downtrend) with Net Asset of RM1 million for RM24 million cash. It was approved at the EGM and let me tell you, I shouted - of course to no avail.

That anger, let us channel it to somewhere else and avoid these mistakes at best we can. How?

Management and owners

If anyone look at the numbers first in a company evaluation, change that approach. Look at the management team and owners first! Only if you are comfortable, then only look at the numbers. For example, I do not even bother about Glenealy even though the numbers can be attractive. Not that I do not have the time but look at who owns the listed company. They are capable family-run business. Desa Park City rings the bell? The development made many property investors rich. (Hence, this does not show that the group is not able to create value) But, the biggest problem which I am not comfortable with the group is - it is not run like a public listed company. It does not have the mindset of a public company. What is the most significant trait of a public company? Sharing.

Samling Group which controls Glenealy is a complex group despite they can be simplified. It has several listed companies in Malaysia and if I can remember, it has another in Hong Kong. It has many privately owned concerns. This is the biggest concern that I have. There you are, a very rich family group with strong connections in Sarawak especially but with many privately owned companies.

This shows that their wealth are not dependent on the public listed ones. Anytime there are good business opportunities, they may pass it to the private ones - possible? Humans are born greedy - remember that. Warren Buffett used to say that he had 99% of his own wealth in Berkshire Hathaway, the company he controls, his trademark-ed company and he earns a USD100,000 salary a year from that company. What does that tell you? Focus and concentration. Sharing and willing to spend most of his time on that sole company - because his wealth are all there. I am very sure Mr Buffett is a very greedy man as well but he knows how to share.

Very controlled shareholdings

Look below.

Who do you think could be controlling 92% of the company with just 43 shareholders? Remember, this is a family run business.

Underlying value
Of course I should not say this, if the company is too attractive in terms of valuation and with a very strong balance sheet, the tendency for the owners to delist the companies becomes very high. This is especially so when they have kept a substantial liquid and valuable assets in the group. Who wouldn't? Have you heard of LBO groups. They specialize in acquiring and delisting companies which are attractive with hidden unseen assets in the balance sheet. These are not illegal or wrong. If I am an owner, I would want to buy cheap as well. The issue here is that the controlling shareholder has a very strong control of the listed company and they have the resources (easily) to delist the company at an attractive price. I believe Glenealy has a very small minorities and sad to say their voices are not strong enough, but what to do, we are minorities. What we can do is to invest intelligently and not just look at the numbers. (Glenealy's minority shareholders are smart too as they know value when they see one, but the majority holder has the upper hand.) Stocks investments however is much more than that and everyone (including me) are still learning.

At least though, these investors in Glenealy had profited from the shares as in the share price trend below.

No comments: